Banamex's tier 1 ratio hit by alleged fraud - Moody's

The US$235mn cut to the 2013 earnings of Citigroup's Mexican subsidiary Banamex due to alleged fraud in its supply chain finance operation reduced the unit's tier 1 capital ratio by 40 basis points to 13.7%, said Moody's in a note to clients.

For Citigroup, meanwhile, the loss knocked two basis points off its year-end tier 1 capital ratios, said the ratings agency.

On Wednesday, Moody's revealed that the alleged fraud cost Banamex a potential upgrade to its C- standalone bank financial strength rating.

In the case, Banamex extended US$585mn of short-term credit to Oceanografía (OSA), a key supplier to Mexican state-owned oil company Pemex, through an accounts receivable financing program, before allegedly discovering fraudulent activity on OSA's books.​

The issue has also resulted in grand jury subpoenas from the US attorney's office to Citigroup and Banamex.​

"Additional charges to earnings could pressure the bank's ability to maintain sound capitalization and limit its ability to expand business volumes and benefit from the improving Mexican operating environment," said Moody's.